An important skill for mastering your money is an ability to set goals.
So how should you do it? It’s very easy to overcomplicate the approach. But don’t stress and take a simple approach to the thought process. Essentially, you can look at shaping a template through asking a group of simple questions: What, Why, How, Where, When.
This the basic question you need to ask yourself. What exactly do I want? There’s no point in mastering all these skills and approaches to money if you don’t have a proper focus. Do you want to be rich, comfortable or to just not be poor? The approaches to managing your money can be very different with each of these.
Refining the answer down to something that you can actually work with may take a while, but essentially you’ve got to start with the end in mind.
‘Why?’ helps give context to your goal. And it can help provide the motivation and inspiration along the route as well. Answering the question isn’t always as simple as it seems. You may say that your money goal is to have $1 million sitting in your bank account, but what’s the deep-down reason for that?
Is it for security? Is it to prove to your father that you could make something of your life? Is it to compete with your next door neighbor? Is it to provide for an orphanage in India? Only you will know. But having a strong enough ‘Why?’ behind your money story can be an important driver of success when you set goals. It helps set your compass in the right direction.
When we look at our money, a lot of us seem to start with the ‘How?’ – or, at the very least, have a muddled ‘What?’ and ‘Why?’. We go to a financial advisor, not really knowing what we want or why but know that we should be doing something.
We might acknowledge a few goals defined by society – a pension, a nice house, a huge “sweet sixteen” birthday party for your daughter – but it’s worth knowing what YOU really want. It’s about what resonates emotionally. Deep down, you may never plan to retire, you might want to remain a renter for life and kids are the last thing on your mind.
That’s why we often end up paying for financial products and services we don’t need. We buy things outside of any properly defined context. We are not in a position of power and personal understanding. So if you haven’t properly defined your ‘What?’ and your ‘Why?’ pause now before you jump into making financial decisions that aren’t aligned with you.
The ‘How?’ will include the planning and the implementation of any plan that you have, and essentially straddles across the highlighted simple questions. It provides structure to the act of doing. Savings plans, asset allocation, dollar cost averaging, stock trading and so on all have a home here.
It’s where practical money skills, tools and techniques are put to work. This could include the useful SMART goal-setting process (applying the SMART acronym Specific, Measurable, Attainable, Relevant, Time-based).
This question is intended to provide more meat to your goal. Say you want a large house with a white picket fence. Where’s that going to be then?
The US or Europe possibly? If you’re saying the US, are you thinking the Florida coast or maybe the California coast? And what town? The more focus there is, the more chance there is financially of realizing what you really want.
Again, this focuses the mind on the money details. It can also provide a sense of urgency or reality. Do you want that house with a white picket fence this year, two years’ time or even five years’ time?
Anyone can set an open-ended goal. But unless you have a target date by when it’s meant to be completed very often it’s hard to measure it. And measurement is key to success, as it tells you how well or not your plan is working.
Then review it as you go along
Don’t forget to have a review process in place. This will make you aware of what parts of the plan aren’t working and will allow you to adapt accordingly. Use this approach when you’re looking at your money goals, big and small, and you’ll be on a good path.